Cash is king, goes the saying. Which is patently true: it is the life blood of any commercial organization. And when businesses fail, the primary cause is often access to cash, rather than - say - the scale of any losses.
So why, then, are businesses so poor at managing their cash? For the facts, as revealed by APEX Analytix’ regularly-published Financial Leaders’ Benchmarking Report, are undeniable: Global 2000 businesses exhibit huge variation in their standard payment terms, both between spend categories and in comparison with other Global 2000 businesses. Even worse, an average organization’s stated payment terms are not reflected in their actual days payable outstanding – payment terms are not being enforced.
Based on the survey data...
Global 2000 businesses report a range of standard payment terms from immediate to NET 75. While the average payment term was 57 days, the actual days payable outstanding was 32 - a significantly lower figure. Whatever the goal, it’s being missed.
Global 2000 businesses are also missing the opportunities to capture discounts that are on offer from suppliers in exchange for prompt payment:
- Over half of all Global 2000 businesses (57%) do not capture at least 80% of the discounts on offer to them.
- 10% capture fewer than 60% of the discounts that are available.
- A massive 41% don’t even track their discount-capture performance.
Typically, most businesses extract discounts from a relatively small proportion of their supplier base, suggesting a reluctance - or inability - to be proactive in reaching out to suppliers in search of discounts. In roughly a third of businesses (29%) discounts are obtained from 2% or less of the supplier base and 22% manage to secure discounts from 3-10% of the supplier base.
The opportunity...
In short, the opportunity to extend the scope of any discount capture program is significant. Working capital initiatives are the second-highest priority of P2P and shared services organizations in the year ahead, as interest rates and the cost of capital edge upwards in most of the global economy. It is no surprise then to discover that among those businesses with working capital initiatives as a strategic priority, a full two-thirds aim to roll out a dynamic discounting capability, flexibly trading off supplier payments against the invoice discounts on offer.
But how, exactly, is this to be achieved?
It is one thing to aspire to enhanced working capital performance and dynamic discounting, and quite another to deliver a meaningful transformation in real performance. Nor can businesses credibly expect to achieve much by simply streamlining or extending their standard payment terms: as we have seen, the evidence suggests a significant gulf between stated payment terms and actual payment performance in terms of days payable outstanding. There is a need to implement new ways of enforcing payment terms.
In our view, the answer lies in leveraging supplier portals as a means of directly engaging with suppliers, automatically enforcing standard payment terms and proactively offering discounts to the entire supplier base.
Supplier portals lower the cost of supplier interaction and assist with supplier onboarding, helping businesses to acquire - and maintain - clean and accurate supplier data. But by facilitating dynamic discounting and working capital initiatives, they can also play a more strategic role, as a platform for directly engaging with suppliers, delivering a genuine financial impact.
APEX Analytix' Financial Leaders’ Benchmarking Report demonstrates that organizations are not using portals effectively. Only 56% of AP organizations make use of supplier portals. And for the most part, those supplier portals that do exist are mainly used for transaction processing and to facilitate invoice and payment enquiries. Just 12% of companies are using supplier portals for supplier on-boarding and just 13% of supplier portals, it transpires, are used to facilitate dynamic discounting.
If businesses are to deliver on their working capital and cash conservation initiatives, then APEX Analytix would suggest that both those numbers need to rise considerably. Many more businesses need to roll out supplier portals - and those supplier portals should come with robust vendor master management and dynamic discounting capabilities as standard. Anything less, and those initiatives will remain as aspirations.
About the author
Danny Thompson is the SVP Market & Product Strategy at APEX Analytix and is responsible for defining and leading APEX Analytix’s software product strategy and roadmap. As the world’s leading provider of supplier portal software and AP recovery audit services, APEX Analytix has been at the forefront of AP technology for over 30 years, working to safeguard over $4.6 trillion. Their SmartVM database of 20 million+ proprietary, scored supplier records was revolutionary, was revolutionary, and APEX Archimedes cognitive technology continues to move APEX Analytix towards the future.
To find out how your organization’s priorities and working capital initiatives compare to those of your peers, take APEX Analytix’s short benchmarking survey and get exclusive access to the 2018 Financial Leaders’ Benchmarking Report.
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